Question 1

The unemployment rate in an economy is 12 percent.The civilian labour force is 50 million.The number of employed workers in the economy is:

Accepted Answer

A) 38 million. 
B) 40 million. 
C) 42 million. 
D) 44 million.

Question 2

In which of the following years was the recession the most severe in terms of real GDP decline?

Accepted Answer

A) 1945 
B) 1954 
C) 1982 
D) 2009

Question 3

Unanticipated inflation benefits debtors at the expense of creditors.

Accepted Answer

A) True 
 B)False

Question 4

If a person's nominal income increases by 2% while the price level increases by 6%, the person's real income:

Accepted Answer

A) increases by about 2%. 
B) increases by about 4%. 
C) decreases by about 6%. 
D) decreases by about 2%.

Question 5

Refer to the above diagram.The straight line E drawn through the wavy lines would provide an estimate of the:

Accepted Answer

A) recession fluctuation. 
B) growth trend. 
C) natural rate of unemployment. 
D) expansion trend.

Question 6

Which statement about inflation is correct?

Accepted Answer

A) Families are always hurt by inflation. 
B) Inflation "subsidizes" those who receive relatively fixed money income. 
C) The redistributive effects of inflation are arbitrary with respect to people and groups in society. 
D) Inflation will decrease the real value of property assets and increase the real value of fixed-value assets.

Question 7

If the natural rate of unemployment was 7 percent, the current unemployment rate was 12 percent, and the nominal GDP was $4,000 billion, then according to Okun's law the economy would have sacrificed:

Accepted Answer

A) $10 billion in potential output. 
B) $400 billion in potential output. 
C) $40 billion in potential output. 
D) $440 billion in potential output.

Question 8

Cost-push inflation may be caused by:

Accepted Answer

A) a decline in per-unit production costs. 
B) a decrease in wage rates. 
C) a negative supply shock. 
D) an increase in resource availability.

Question 9

As applied to the price level, the "rule of 70" indicates that the number of years required for the price to double can be found by:

Accepted Answer

A) dividing "70" into the annual rate of inflation. 
B) dividing the annual rate of inflation into "70." 
C) subtracting the annual change in nominal incomes from "70." 
D) multiplying the annual rate of inflation by "70."

Question 10

If the price level increases by 15 percent while nominal income increases by 8 percent, then in percentage terms real income would:

Accepted Answer

A) rise by about 8 percent. 
B) fall by about 8 percent. 
C) fall by about 7 percent. 
D) fall by about 15 percent.

Question 11

The price level has doubled in 35 years.The approximate annual percentage rate of increase in the price level over this period has been:

Accepted Answer

A) 50 percent. 
B) 20 percent. 
C) 5 percent. 
D) 2 percent.

Question 12

The presence of discouraged workers:

Accepted Answer

A) increases the size of the labour force, but does not affect the unemployment rate. 
B) reduces the size of the labour force, but does not affect the unemployment rate. 
C) may cause the official unemployment rate to understate the amount of unemployment. 
D) may cause the official unemployment rate to overstate the amount of unemployment.

Question 13

Inflation rates in Canada in recent years:

Accepted Answer

A) are relatively higher than the rates in other industrial countries. 
B) are relatively the same as the rates in other industrial countries. 
C) are relatively lower than the rates in some other industrial countries. 
D) are double digit and comparable with the rates in Kenya and Venezuela.

Question 14

Refer to the above diagram.The phases of the business cycle from points A to D are, respectively:

Accepted Answer

A) peak, recession, expansion, trough. 
B) trough, expansion, expansion, peak. 
C) expansion, recession, trough, peak. 
D) peak, recession, trough, expansion.

Question 15

Which of the following is correct?

Accepted Answer

A) inflation will always increase the real income. 
B) inflation does not affect the distribution of income. 
C) the redistribution effects of inflation does not depend upon expectation. 
D) the redistribution effects of inflation depends upon whether or not it is expected.

Question 16

Inflation affects:

Accepted Answer

A) both the level and the distribution of income. 
B) neither the level nor the distribution of income. 
C) the distribution, but not the level, of income. 
D) the level, but not the distribution, of income.

Question 17

Official unemployment statistics:

Accepted Answer

A) understate unemployment because individuals receiving unemployment compensation are counted as employed. 
B) understate unemployment because "discouraged workers" are not counted as unemployed. 
C) include cyclical and structural unemployment, but not frictional unemployment. 
D) overstate unemployment because workers who are involuntarily working part time are counted as being employed.

Question 18

The aggregate cost of unemployment can be measured by the:

Accepted Answer

A) amount by which actual GDP exceeds potential GDP. 
B) amount by which potential GDP exceeds actual GDP. 
C) excess of real GDP over nominal GDP. 
D) excess of nominal GDP over real GDP.

Question 19

During 1986-1991, Nicaragua has experienced an economic condition which can be best described as:

Accepted Answer

A) hyperinflation. 
B) cost-push inflation. 
C) unanticipated inflation. 
D) demand-pull inflation.

Question 20

Too much spending chasing too few goods best describes:

Accepted Answer

A) the GDP gap. 
B) demand-pull inflation. 
C) the inflation premium. 
D) cost-push inflation.

Exam 9: Part B: Business Cycles, Unemployment, and Inflation